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This study presents a usage-based methodology of transmission loss allocation in deregulated power systems under open access. This new approach calculates the portion of real power transmission loss contributions from the generators and simultaneously the portion of real power transmission loss allocated to the loads using their contract obligations with the generators in the open access environment. A power flow procedure is used to calculate power loss in the system. It is desirable to take network loss effect of injection power at each node for calculating contribution of transmission loss by each generator and loss allocated to loads based on its contractual obligations with consumer. In this study, a methodology is proposed to calculate the total real power loss in transmission network into components to be allocated to the generators and loads. This study focuses on development and application of the equivalent loss compensation concept for open access environment. Effectiveness of the proposed algorithms has been demonstrated on sample 5-bus and IEEE-118 bus power networks.